From technology to transformation

Canadian oil and gas innovation, and how to thrive in the new digital world

The Canadian oil and gas industry is jumping head first into the digital world. Over the past decade, the sector has increased investment in technologies and prioritized digitalization to push cost reduction and improve environmental performance. But as the world moves toward an increasingly digital future, are we doing enough?

How we got here

“For Canada and all of North America to remain competitive at a global level, we need to continue to focus on technology so that we are able to withstand downturns in the energy industry and take full advantage of the upturns. Technological innovation is the key to our success today, and into the future.”

—Energy Visions 2015

Shifting focus

The oil and gas industry has a long history of technological innovation. Leading up to the commodity price decline in late 2014, technology investment focused on growing production and reserves. Since then, the focus has shifted. Cost containment, operational efficiency and improving environmental performance have taken precedence. These have let Canadian resources maintain compliance with stricter regulatory requirements and compete in global markets.

The way industry leaders view their organizations has also shifted. No longer just considered an energy business, they’re now in the manufacturing business. Margins and return on capital have become important metrics of success, and technology is seen as an opportunity to lower unit costs as production has increased.

Investments in innovation pay dividends

Past technology investments are paying off. In-situ operators have cut operating costs by 45% since 2014, with integrated mining operators cutting costs by 33%, according to Alberta Energy. Greenhouse-gas-emission intensity has fallen by 25% in the past decade, bringing oil-sands barrels in line with US production. What’s more, the industry continues to invest in technology that keeps production competitive. And solvent flooding and other technologies promise significant cost and emissions reductions for in- situ oil-sands development.

Unconventional resource producers have seen similar cost reductions. Alberta Montney and Deep Basin producers saw supply costs fall by 18% from 2016 to 2017, according to the Alberta Energy Regulator. Operators continue to innovate, producing more with less, making the most of improved drilling technologies and increased fracturing intensity.

Industry at a turning point

Technologies revolutionizing business today

According to our CEO Survey, oil and gas CEOs named technological advances as the top global trend that has transformed their business the most within the last five years, a trend likely to continue.

Today, technologies centred around data are making an especially big impact. The industry produces a lot of data, and advanced analytics like machine learning and artificial intelligence (AI) give new ways of interpreting this and creating previously unknowable insights. The industry has already started adopting these essential technologies, such as AI, robotics, blockchain and virtual reality, to make projects more efficient, speed up resource recovery and lower labour costs.

Technologies making an impact in oil and gas

Artificial intelligence

According to our CEO Survey, 80% of global oil and gas CEOs say they agree or strongly agree AI will significantly change the way their companies do business in the next five years. What’s more, 65% said they plan to implement or have already implemented some aspects of AI in their operations.

Remote well-site monitoring: An intelligent visual monitoring platform that creates alerts and reports based on the data gathered from field devices is finding wide acceptance with more than 30 oil and gas companies, mostly in Western Canada. Operators report the technology has reduced routine well-site visits by 50% by using the site-inspection tool.

Artificial lift and well-optimization technology: A major Canadian producer launched a three-month pilot, installing sensors remotely connected to an optimization system on 60 wells. The pilot resulted in around CA$1.50-per-barrel savings in operation costs. The producer has since implemented the technology across the field and is looking to use it in other areas across Western Canada.

Blockchain

Blockchain is quickly finding uses in the oil and gas industry. In early 2018, a company and its partners performed the first blockchain transaction for freehold royalties in Alberta. The company expects to be using blockchain for all freehold royalties by the end of 2019 and has set its sights on transforming its accounts receivable next. Several other large Canadian oil and gas producers report they’re testing blockchain, with the goal of implementing it in the near future.

Digital twins, drones and virtual reality

Large Canadian operators are using digital twins to help manage high capital costs. Nearly 90% of large oil and gas projects go over budget. And they experience an average 17% schedule delay and 30% cost overruns, according to the Construction Owners Association of Alberta. This leads to unplanned on-site rework, as parts and equipment don’t fit as expected.

The technology provider documented a digital “site reality” using drones and laser scanners. It then digitally matched project components like blueprints with that site reality, so fit errors could be detected and communicated to the fabrication shop or the engineering team.

What is a digital twin?

A digital twin is a continuous learning system of digital copies of assets, systems and processes that can be automatically queried for specific outcomes, letting you predict asset behaviour and the capacity to deliver within given parameters and cost constraints.

Going digital in Canadian oil and gas

From the oilfield to the office digital technology is changing the way we work and making our industry more competitive. ‍Here's a look at some of the technologies that are being used in the hydrocarbon value chain and their expected benefits.

Cybersecurity

According to our CEO Survey, 59% of global oil and gas CEOs see cybersecurity breaches as a threat to their growth prospects. As assets become increasingly connected to the network, it’s important to protect critical digital infrastructure against cybersecurity attacks by monitoring threats, pinpointing vulnerabilities, building reliable controls and promoting a culture of security awareness.

Historically, the energy industry has focused its cybersecurity around corporate information technology systems. But this focus needs to expand to operational technology (OT), the hardware and software used to control industrial processes. A cybersecurity attack on an OT environment can have consequences beyond financial losses, including prolonged outages, environmental damage and safety concerns.

Looking ahead

A growing innovation gap

While technological advances have kept the Canadian industry competitive over the past decade, its technological advantage is at risk, as regulatory and pipeline uncertainty results in investment moving to the United States.

The large scope of activity in the United States is creating economies of scale, making innovation more likely to occur there than in Canada, according to the leader of one of Canada’s largest drilling contractors. This view is echoed by the leader of an environmental service company, who said a gap exists in the Canadian technology development ecosystem when it comes to scaling up technologies. Canadian companies are investing money in the early stages of technology development (testing and validating the technology) only to have other countries commercialize it.

If history repeats itself—especially if industry is unable to get more market access—these innovation challenges will grow as investment and activity stagnate. But the industry has a number of options available to maintain and build on Canada’s innovation advantage in the face of these challenges:

Scaling up

Collaboration

Encourage a culture of collaboration among industry sectors. The low-bid procurement process in the Canadian oil and gas industry often limits the uptake of new technologies. Bidding is done on one-off projects based on price, limiting opportunities to collaborate on integrating new technologies into supply chains. Creating a more collaborative contracting process over multiple projects could let technologies improve over time and become integrated into supply chains.

Balancing risks and rewards

Technology providers often say they’re assuming most of the development risk while their clients capture most of the reward. Clients often claim the opposite is true: they work with the technology provider only to have them take the technology to competitors once proven. Transparency is needed to balance the risks and rewards between parties and create successful relationships.

Take a long-term view of technology development

When times are good in the oil and gas industry, companies put their capital into growing production rather than technology development. In bad times, capital to invest in technology is limited. Companies should invest in technology development throughout price cycles to stay resilient in any price environment.

Making disruption work for, not against, you

Technology is seen as having three primary roles: assisting in creating more efficient uses of energy, helping to reduce operating costs and being instrumental in providing sustainable energy.

The past has proven technology implementation in oil and gas can achieve real results for a business’s bottom line. Moving forward and as the market transitions, business leaders will have to build on their lessons learned. Competitive advantage will come to those who go beyond just implementing technologies and work to balance business understanding with human insight.

Too often, businesses view digital transformation as an exercise driven by technology. It’s more a case of identifying its purpose and addressing a key business challenge, and then seeing how technology can support your goals.

Industry leaders must take a comprehensive approach to digital transformation, considering how they can incorporate digital as a centrepiece to their growth strategy.

Here are three steps for operators expanding their digital transformation journey:

Develop a transformation strategy

Investment needs to go beyond just giving employees digital tools. Leadership needs to decide which problems are worth solving. What are those big opportunities the organization should be chasing if it were able to mobilize its entire workforce around them? The leadership team also needs to share that information across the organization.

Shift mindsets and new ways of working

Just giving employees a new set of tools and more education won’t help when they’re still working in the same way as the past. And according to our Digital IQ report, only one-third of Canadian executives are likely to train employees on changes to their jobs. Leadership needs to focus on upskilling the organization to work in a digital environment and lend support to employees, helping them work effectively.

Building the energy workforce of the future

Is Canada's energy industry facing a skills shortfall? How can we better prepare our workforce for new ways of working in the digital age?